Latitude Group Holdings Ltd. · ASX:LFS
Latitude — Investor Presentation (August 2023)
38 slides from Latitude's investor presentation, Aug 18, 2023
Slide 1: Latitude 1H23 Results
18 August 2023 Latitude 1H23 Results Latitude Group Holdings Limited ACN 604 747 391
Slide 2: Important notice and disclaimers
Important notice and disclaimers Important notice and disclaimer The following important notice and disclaimer applies to this presentation (“Presentation”) and you are therefore advised to read this carefully before reading or making any other use of this Presentation or any information contained i
Slide 3: Important notice and disclaimers (cont’d)
Important notice and disclaimers (cont’d) Information and liability To the maximum extent permitted by law, LFS and its respective affiliates and related bodies corporate and each of their respective directors, officers, partners, employees, agents and advisers (together, the “Beneficiaries”) exclud
Slide 4: 1H23 Summary
1H23 Summary Bob Belan Managing Director & CEO
Slide 5: 1H23 results in line with market guidance
1H23 results in line with market guidance Actual Guidance Volume $3.6Bn $3.3 - $3.6Bn Receivables $6.2Bn $6.1 - 6.3Bn NIM 9.80% 9.60 - 9.80% NCO 3.31% 3.30% Coverage rate 4.22% 4.20% $53m $53m Cyber costs (post tax) (post tax) TER 7% 6 - 7% Cash NPAT $7m $5-10m Stat PAT (cont. ops) $(98)m $(95) - (1
Slide 6: 1H23 update... A solid start followed by a Cyber impacted 2nd quarter
1H23 update... A solid start followed by a Cyber impacted 2nd quarter Highlights Challenges: ✓ Cash NPAT1 1H23 $7.0m vs $5-$10m guidance ❖ Cyber incident: ✓ Cyber disruption impacted volume but momentum is rebuilding • Triage, Response, Recovery & Rebound • Origination volume impacts and delayed mar
Slide 7: The March cyber incident created significant disruption and required a focused approach
The March cyber incident created significant disruption and required a focused approach to safely restore business operations Complete Complete Ongoing In Progress 1 2 3 4 Some risks associated with cyber remain … RESTORE REBOUND R E M E D I AT E REBUILD Technology Restore systems to Regain and surp
Slide 8: Despite a strong start, new originations, pricing actions and collection activities were all impacted
Despite a strong start, new originations, pricing actions and collection activities were all impacted but a recovery is underway Early volume and receivables momentum disrupted by cyber incident in mid March Cyber Impact Post Cyber Rebound 7,100 692 800 636 629 700 6,850 607 565 600 489 6,600 500 6,
Slide 9: Macro headwinds impacting revenue growth are still present but are abating
Macro headwinds impacting revenue growth are still present but are abating Household Savings below pre-COVID Elevated repayment rates Rate rises reaching their peak… levels … are normalising … Peak: 25.0% 23.7% 130% Peak: Current: 123% 4.5% 4.1% 125% 20.0% 120% 4.0% 115% 3.5% 15.0% 110% 3.0% 105% Pr
Slide 10: A renewed strategic focus on fundamentals to accelerate growth and elevate profitability
A renewed strategic focus on fundamentals to accelerate growth and elevate profitability Path to Full Potential Strategy – Phase I Progress to Date (Simplify – Optimise – Maximise) ❶ ❷ ❸ Brilliant Basics Brilliant Portfolio Optimised ✓ Operating model & cost base re- engineering in progress Basics R
Slide 11: Drivers of growth - unlocking our full potential
Drivers of growth - unlocking our full potential Extensions & Adjacencies (Phase III) Re-invest In The Core & Innovate (Phase II) Focus on Latitude Fundamentals (Phase I) Future Full Symple New Path to Full Potential Strategy Acquisition Synergies Macro Economic transitions Latitude New Partnerships
Slide 12: Newly appointed and restructured Executive Team leading our Path to Full Potential agenda
Newly appointed and restructured Executive Team leading our Path to Full Potential agenda Bob Belan Paul Varro Adriana Martinez1 Paul Byrne Managing Director & CEO CFO & EGM Finance EGM Pay EGM Money (Commenced 1 Apr’23) (Commences 12 Sep’23) (Commenced 1 May’23) Andrew Walduck Mark Brudenell Karl H
Slide 13: OUTLOOK...
OUTLOOK... • The cyber incident was a material set back to volumes and margins. As the recovery gains momentum, planned initiatives are implemented and cash rates likely nearing the terminal point, we expect interest income yields to improve further. • With inflationary pressures persisting and cash
Slide 14: 1H23 Financial Update
1H23 Financial Update Paul Varro Chief Financial Officer
Slide 15: 1H23 financial snapshot
1H23 financial snapshot Cash NPAT in line with Volume recovering post Operating Income stabilised, TER in 6-7% target range, guidance Cyber RAI impacted by Cyber dividend paused Cash NPAT ($m) Volume ($m) Operating Income (%) TER (%) 93 4,240 11.8% 9.2% 8.5% 3,713 10.8% 10.5% 7.0% 3,617 61 7 1H22 2H
Slide 16: Volume momentum returning, although repayments slowing still above long-term average
Volume momentum returning, although repayments slowing still above long-term average Volume momentum returning from Cyber … June back at 2022 700 Receivables impacted by lower volume, down (4)% HoH 650 600 550 Gross loan receivables ($m) 500 Cyber impacted period 450 YoY: ↑~150m/13% ↓1% ↓~235m/13% 4
Slide 17: Increased funding costs continue to compress margins, pricing actions gaining traction
Increased funding costs continue to compress margins, pricing actions gaining traction Operating Income down $(37)m YoY, $(8)m HoH Rate impact: $43m Operating Income ($m) 31 5 (77) 1H23 YoY Key drivers: Pay A&NZ: +23 Money A&NZ: +10 5 370 Other: (3) Pay A&NZ: (55) • AGR ↑ 1.0% driving $5m Operating
Slide 18: Operating income margin evolution: pricing lag now closing
Operating income margin evolution: pricing lag now closing Pricing gaining traction – income yield vs Strategic/ competitive repricing initiatives actioned across Re-pricing strategies commence 2H22, slight pause CoF yield PL / Auto and GO/Gem APR’s in 1H23 from Cyber HoH 140bps Revenue 100bps Yie
Slide 19: Collections impacted by Cyber, will return to pre-Covid levels due to environment
Collections impacted by Cyber, will return to pre-Covid levels due to environment Quality of new customer originations remains strong Cyber related delinquency reducing 26% 5.24% 30% 32% 33% 35% 30+ DPD% 4.58% CR1 3.92% 3.65% 3.60% 37% 38% CR2 3.05% 38% 37% 35% 2.73% 2.57% 2.40% 30+ down 164bps CR3
Slide 20: Elevated charge offs due to Cyber, provisions adjusted accordingly
Elevated charge offs due to Cyber, provisions adjusted accordingly Net charge off rates elevated from Cyber … …with prudent provisioning levels Jan-Feb 2.64% Mar-Jun 3.64% 5.50% 3.83% 3.37% 3.28% 3.31% 4.62% 4.46% 2.66% 2.54% 4.24% 4.28% 4.21% 4.22% 2.37% 2.32% 2.12% 3.74% 3.75% 1H19 2H19 1H20 2H20
Slide 21: Disciplined cost control… reductions in FTE, marketing & occupancy
Disciplined cost control… reductions in FTE, marketing & occupancy Total opex down (1)% YoY, up 8% HoH Key drivers YoY: 15 (15) 196 • FTE reduction (14)% & disciplined cost 195 (3) 1 control offsetting FY22 one offs (4) 4 • Marketing ↓ due to spend efficiency and pause during cyber incident Cash Ope
Slide 22: Notable Items elevated due to Cyber related costs
Notable Items elevated due to Cyber related costs $149m (pre-tax) Notable Items in 1H23 include Cyber, BNPL impairment and David Jones 149 • Includes ID replacements (80% of costs), technology, legal and professional fees Key drivers: Cyber • $11.8m costs incurred (responding to incident) $76m • Cyb
Slide 23: Diverse, cost-effective funding underpinned by prudent capital management
Diverse, cost-effective funding underpinned by prudent capital management Cost 40+ 46% Investors Diverse Funding Platform Effective Investors Offshore to A&NZ Prudent capital management approach • Programmatic issuance and balanced • Capital strength protects against adverse maturity concentration s
Slide 24: Appendix
Appendix [C3 LATITUDE 24
Slide 25: Key metric trends
Key metric trends Monthly group volume… Monthly group net interest margin… $m % of average gross receivables (AGR) 900 12.0% 800 11.5% 700 11.0% 600 500 10.5% 400 10.0% 300 9.5% 200 100 9.0% 0 8.5% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun Jul Au
Slide 26: Results summary
Results summary 1H23 2H22 1H22 HoH YoY Volume ($m) 3,617 4,240 3,713 (15%) (3%) AGR ($m) 6,399 6,264 6,313 2% 1% Gross receivables ($m) 6,229 6,474 6,257 (4%) (0%) Cash NPAT ($m) 7 61 93 (89%) (92%) Statutory NPAT cont. ops ($m) (98) 12 46 large (314%) Cash EPS (cents) 0.67 5.83 8.95 (89%) (93%) Div
Slide 27: Summary profit & loss statement (cont. ops)
Summary profit & loss statement (cont. ops) ($m) 30-Jun-23 31-Dec-22 31-Dec-21 Change % HoH Change % YoY 1H23 2H22 1H22 Interest income 476.2 450.8 439.4 6% 8% Interest expense (165.3) (127.7) (86.7) 29% 91% Net interest income 311.0 323.1 352.7 (4%) (12%) Other income 22.6 18.7 17.7 21% 28% Total o
Slide 28: Cash NPAT to Statutory NPAT 1H23 (cont. ops)
Cash NPAT to Statutory NPAT 1H23 (cont. ops)… Cash NPAT Amortisation Amortisation Corporate Restructuring Cyber related Asset/ Work Decommissioned Stat NPAT 1H23 of acqusition of legacy Development Costs costs in Progress facilities ($m) intangibles transaction Impairment costs Net interest income 3
Slide 29: Funding: higher cash rate scenario sensitivity
Funding: higher cash rate scenario sensitivity Group cash rate sensitivity analysis 4.5% 2H23 HTD ave cash rate 4.10% • 100bps rates = ~$40m interest expense (pre-tax, annualised) 4.0% 3.5% • Ave HoH rate delta was 139bps (cash)/ 8bps (3-yr swap) 1H23 ave cash rate 3.53% 3.0% • 1H23 ave cash rate =
Slide 30: Repayment rate and excess household liquidity
Repayment rate and excess household liquidity… MoM chg HH deps (rhs) Repay't rate Pre-Covid ave LT ave C19 ave 130% 35000 30000 120% MoM change in Househoold Deposits ($ millions) 25000 110% 20000 Repayment Rate 15000 100% 10000 90% 5000 0 80% -5000 70% -10000 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-
Slide 31: Longer term LFS experience: RAI range of 8-12%
Longer term LFS experience: RAI range of 8-12%… Source: Company data, RBA, ABS Investor Presentation 1H23 31
Slide 32: Delinquency performance over time
Delinquency performance over time Delinquencies (30+ days past due) by product, Australia Delinquencies (30+ days past due) by product, New Zealand % Accounts 30+ days past due % Accounts 30+ days past due Mar’23 Mar’23 9% 9% Cyber incident Cyber incident 8% 8% 7% 7% 6% 6% 5% 5% 4% 4% 3% 3% 2% 2% 1%
Slide 33: ESG 1H23 highlights
ESG 1H23 highlights $965,258 donated to our charity partners via Supporting vulnerable customers through workplace giving since August 2017 contribution to a collective industry donation to Financial Counselling Foundation $10,000 to New Zealand Red Cross Disaster Office emissions baseline metrics e
Slide 34: Who we are
Who we are [U3 LaTiTUDE 34
Slide 35: Latitude has evolved to become the largest non-bank unsecured consumer lender in AU & NZ
Latitude has evolved to become the largest non-bank unsecured consumer lender in AU & NZ Range of White label Latitude is Separation from GE Establishment of Launch of IPO & Shinsei Acquisitions of International CEO Hallmark New Path to Full AGC founded acquisitions capabilities acquired from as a s
Slide 36: Simplified and efficient “twin-engine” revenue model
Simplified and efficient “twin-engine” revenue model… ❖ ❖ PAY X-SELL MONEY > > $3.5b $2.7b receivables receivables PAY and MONEY are built to maximise customer lifetime value via cross-sell and optimisation of average acquisition cost Source: Company data. For illustrative purposes only. Investor Pr
Slide 37: Latitude well positioned to leverage macro reversion
Latitude well positioned to leverage macro reversion Historical trend Pre-Covid Covid Period Macro correction Trend Tomorrow (2019-1H23) (2019) (2020-21) (2022-23 | Today) Macro setting 4.1% 1.5% Reduced to Rapid increases to Rates will be “higher for longer” however Cash Rate1 0.8% 0.1% 0.1% Neutra
Slide 38: Thank you
Thank you Investor Relations Mitchell Hawley +61 466 927 612 Media Mark Gardy +61 412 376 817 38
Latitude Group Holdings — Investor Presentation (August 2023) on 6ix